A bad omen for Samsung

Hong Jang-pyo, senior presidential secretary for economic affairs, and Kim Hyun-chul, a presidential aide for economic affairs, on Oct. 13 suddenly described a bright outlook for the economy. Their comments sounded out of place since the government had been entirely engrossed with a left-leaning agenda that hiked the minimum wage and forced the conversion of contract workers to a permanent employment status to strengthen labor rights while demanding more taxes and reforms from the corporate sector.

The economic aides tried to swing attention to the economy as a whole on nonofficial orders from the president during the long Chuseok holiday in early October. Moon Jae-in reportedly told them that there should be clearer signs of economic improvement by the end of the year. Local elections next June could be a confidence vote on the president a year into office. In an official secretariat meeting this week, Moon said that expectations were building for improvements in the economy.

On his cue, dovish members like Kim Dong-yeon, deputy prime minister for the economy, would likely appear more frequently on the economic field instead of the more left-leaning players like Chang Ha-sung, chief secretary for policy, and Fair Trade Commission chief Kim Sang-jo.

The president and his aides are sounding buoyant about the economy largely due to the bullish stock market. The Kospi hit a new milestone of 2,500 on Tuesday and has gained 23 percent this year.

The primary driver was Samsung Electronics. The bellwether stock now hovers above 2.7 million won ($2,389) per share, more than doubling from about 18 months ago thanks to a semiconductor boom. The company made record profits this year despite the absence of its chief Lee Jae-yong, who is behind bars and awaiting a final sentence on bribery charges.

In the past, Samsung Electronics was technically in the hands of foreign players as foreign ownership exceeded 50 percent. The stock soared 150 percent over the year despite 4.4 trillion won in net selling by foreign investors. Samsung Electronics now has more control over its stock through its record 10 trillion won buyback program. It spent nearly half of last year’s net profit of 22 trillion won to pay dividends and buy treasury shares to boost the stock.

In past years, Samsung Electronics spent most of what it earned to hone its technology and increase its capacity to defend its top ranking in the chipmaking industry. From last year, it has given more of its profits to shareholders. Next year, it plans to spend another 20 trillion won to boost its stock. Its action favoring stock value underscores its self-consciousness after suffering public scorn and shame in connection with the power abuse scandal involving former President Park Geun-hye and her friend Choi Soon-sil.

The National Pension Service (NPS) and local institutions were the company’s biggest patrons before. But the Choi Soon-sil scandal suggested that it cannot rely on the NPS, which is the second largest shareholder. The company learned that it has to be on its own to defend its management and viability, which is the primary cause for its aggressive buyback program.

The stock buyback and cancellation of treasury shares can also legitimize the Lee family’s hold over the conglomerate. The shares of Lee family members in Samsung Electronics rose 1.5 percentage points to 20 percent over the last year. Samsung Electronics can now more confidently deflect criticism that the Lee family runs the behemoth with a paltry stake as well as the argument about it sitting on a mountain of cash reserves.

The liberal front is out to draw clearer lines between the financial and industrial sectors, which could limit the voting rights of Samsung Life Insurance, which owns 7.2 percent in Samsung Electronics. That was another reason for Samsung Electronics to up its treasury stock share.

The company is also in a search of foreign and female members for its board. That idea again is described as way of improving management transparency. But the company also wants to seat foreign directors to defend the company against predatory attack from foreign hedge funds. With foreign faces on the board, politicians and authorities at home could become less meddling.

Samsung Electronics also skipped the annual ritual during the Chuseok holiday of purchasing 100 billion won worth of gift coupons that can be spent in small stores and markets. In an official statement, the company said it was part of efforts to avoid public-sponsored gift programs since the Choi Soon-sil bribery scandal. But again it suggests the company wants to distance itself from society for its own defense.

The 20 trillion won Samsung Electronics plans to spend next year on stock purchases and dividend payouts nearly amounts to the budget needed to finance President Moon’s campaign pledge of creating 810,000 jobs in the public sector over the next five years. Samsung Electronics in the past would not have hesitated in using its excess profits on facilities investment and new hiring. Other large companies are poised to follow suit.

Moon’s aides should not be cheering about the Kospi. Those profits are merely fattening foreigners. The more its stock climbs, the less Samsung Electronics is spending at home.

JoongAng Ilbo, Oct. 25, Page 35

*The author is a senior editorial writer of the JoongAng Ilbo.

Lee Chul-ho